Investor-ex: The whole Asia thing creates some interesting cross-currents. They are undergoing an old fashioned bank panic credit crunch. Marginal projects and marginal companies that six months ago could have been financed without any problem will now be stopped dead.
Usually one sees a big runup in interest rates before an economy gets to that phase, and that didn't happen this time, but the effect of the credit crunch is the same regardless. It severely weakens or eliminates economic growth in the countries in question. This is very deflationary for the world, and implies lower interest rates ahead, which is normally very bullish for equities.
The problem is that this is coming at what I believe is a cyclical peak in earnings. Earnings as a percent of sales can't get much higher, and multiples of those earnings are huge. There is a potential double whammy of earnings of US companies being disappointing because of a loss of demand and perhaps new lower cost competition from Asia, followed by lower multiples of those earnings, because the companies in question aren't "growth" any more, or are less predictable.
There is a real risk that a lower market would feed on itself, cut off the flow of IPO money and reduce consumer spending, creating a recession here later next year, which would further damage earnings expectations and multiples. Long term government bonds still look great, though.
As to the technical analysis part, up until this year every stock market around the globe was hitting new highs together. Now most are getting killed except for the US and a few others. Typically, bull markets end with strength in the blue chips accompanied by weakness in the advance/decline figures, as there is no longer enough money around to move more than a few stocks up. In a global sense, this is what is happening now; there is no longer enough equity money around to move up all the world's markets, just barely enough to keep the US market holding its own at best. The DJIA might even run up to marginal new highs, but if it did it by itself will little participation from other markets, that would probably be the last gasp of the bull. |
